Filenews 28 April 2025 - by Theano Thiopoulou
Banks and their customers, as well as in the rest of Europe, are presented on their balance sheets a series of new data that will depict: the emissions to pollutants from both their own activities and those of their customers and their targets in terms of reducing pollutant emissions for 2030. A process for granting loans that may seem simple, but bank customers will face a lot of bureaucracy, because climate change will affect the pricing of loans and their granting is now done according to environmental criteria. The data collected by banks will lead to the introduction of new lending standards and those interested in financing with better ESG scores will ensure easier and better lending.
"F" gathered interesting data from the 2024 annual reports of the two banks, Bank of Cyprus and Hellenic, records the new data so that customers know that the adoption of ESG criteria gives credit institutions the difficult role of evaluating them and they in turn should inform institutions what actions they are taking to protect the environment.
Bank of Cyprus
The group's lending policy, as stated in the annual report, "supports its efforts to manage the environmental and social risks associated with financing activities, including minimising the potential impact of pollution. The policy sets out the standards and guidelines to be used in the appropriations process. It guides individuals involved in the lending process on lending standards and credit risk assessment, including ESG due diligence in the lending process for legal entities and its interaction with credit risk." During the credit application assessment process, which falls under specific thresholds/criteria, for the granting of new and/or the revision of existing credit facilities, business units must identify, assess and assess ESG issues that concern the borrower, applying the ESG due diligence process. The first step of ESG due diligence is to incorporate an ESG questionnaire designed to assess the client's performance and exposure to risk in relation to ESG factors (applies to new lending and the client's annual review). The questionnaires must be completed by the client in order to collect relevant quantitative and qualitative data, identify and assess ESG issues affecting the borrower, and to extract an ESG score, which reflects the client's performance against ESG factors and clients' exposure to ESG risks. The relevant ESG questionnaire includes queries designed to assess the counterparty's performance and exposure to pollution risks, taking into account the industry in which the counterparty operates. The question concerns whether the contractor, in the context of the production process, releases polluting chemicals into the environment. Clients have the option not to provide information in the ESG questionnaire, so in this case their overall ESG performance is penalized and reflected in the overall ESG score received.
On green lending policy, the group states in the annual report that it "promotes the financing of projects with tangible environmental benefits, including those aimed at mitigating pollution. The policy sets out the criteria for qualifying a loan as green, focusing on projects such as renewable energy, sustainable construction, and pollution prevention and control, including air emission reduction, soil remediation, prevention, waste reduction and recycling, and more. By providing green loans, the bank manages the significant negative impacts associated with air and soil pollution."
Hellenic Bank
The bank aims to develop decarbonisation strategies/transition pathways for specific sectors of its credit portfolio. To this end, it states in the annual report, it will align with the Eurobank group in terms of the sectors and key performance indicators ("KPIs") that will be developed. Eurobank Group has identified its priorities, with carbon-intensive sectors accounting for a significant proportion of its financed emissions, and has developed its 2030 emission reduction targets, which will also cover the bank's portfolio. The targets will be finalised within 2025, including the gradual establishment of targets by 2050 and the operationalisation of the Net Zero 2030 targets." The annual report notes "in order to further strengthen the bank's resilience to climate-related risks, the overall risk management process has been updated accordingly to include any capital impact of climate-related risks, collateral valuations and due diligence within lending policies, among others. The risk-taking appetite is continuously strengthened in order to incorporate relevant limits on sustainable lending, renewable energy and carbon footprint, with a view to establishing a clear long-term vision for the shift of the portfolio away from client segments with high climate risk, notably through incentives, promotion and financing of the green transition and enhancing customer awareness."
Regarding its sustainable lending policy, the bank notes in its annual report that it sets out a framework for the assessment of sustainable lending and the classification of credit facilities into green and/or social loans. "Green loans aim to support customers for their green transition. In addition, the bank aims to increase green lending within the targets set in the ESG strategy. The bank also aims to improve the collection of ESG data from its customers, which in turn allows for better classification in accordance with the Taxonomy Regulation. It is noted that the sustainable lending policy will be reviewed in the context of alignment with the Eurobank Group".
The properties are assessed for pollution and earthquake
In their annual reports, banks make detailed reports on climate risks, which was unthinkable a few years ago. For example, among many others, the Bank of Cyprus notes, specific environmental risks have been examined, namely air pollution, soil pollution and earthquake in relation to the following: Properties assigned as collateral of the secured portfolio in terms of credit risk (collateral geolocation coordinates) – in terms of air pollution, soil pollution and earthquake. Borrowers for an unsecured portfolio in terms of credit risk (postal codes or municipalities of the borrowers' location) – in terms of air pollution, soil pollution and earthquake. Properties assigned as collateral of the REMU portfolio in terms of market risk (collateral geolocation coordinates) – in relation to earthquake. Deposits of Cypriot residents in relation to liquidity risk (postal codes or municipalities of the locations of the deposit holders) – in relation to the earthquake. Physical locations of the BOC in terms of operational risk (postal codes or municipalities of the BOC facilities – in relation to the earthquake. In addition, the valuation process of the collateral of the bank, REMU and its own properties includes several important parameters and valuation factors. The BOC, the annual report states, through a specific circular, in 2023, stressed to the valuers the importance of considering certain physical risks during the valuation process. The following risks must be taken into account during the assessment process, although the list is not considered exhaustive: Geological soil suitability (identification and reporting of the zone and its characteristics); Seismicity of the area around the property (identification and reporting of the zone and intensity). Flood risk (identification and reporting of zone and intensity).
